A lot has been written regarding Target’s announcement about finally purchasing the majority of Zeller’s locations. This has been rumoured off and on for over a decade and someone felt compelled enough to pull the trigger this month.
On the surface, it seems like a good deal for Hudson Bay Company, now that they have been able to unload the albatross around their neck. It seems ever since Wal Mart converted the Woolco franchise over 15 years ago, Zellers has never been the same or close to the dominant, “The Lowest Price is the Law” player it used to be. The stores always looked and felt old fashioned and dark. The initial problem that Target encountered years ago was that the real estate portfolio contained so many iterations of size, shape and type of location that there was little ability to standardize presentation, assortments or operations. Now that Target has perfected a number of formats to deploy, it became easier for them to swallow most of the Zellers portfolio.
But I believe there are two bigger winners than HBC…
1) The landlords. Let’s even assume for a moment that the landlords are still saddled with dated, below market leases, it is still a huge victory for them. Not only do they get the most popular retailer that Canadians don’t already have as their new tenants, Target will spend over $1 billion in renovations that will upgrade each centre. The coup de grace is that the rising tide of traffic and business that will be generated by these new stores and new-to-Canada concept, will lift all boats in their centres. This is huge.
2) The consumer. Not only has the consumer been waiting for Target to enter the market (actually they haven’t waited patiently as they have repeatedly sought them out across the border whenever possible) but there is a void in this market for well merchandised and unique offerings in apparel (look at the success of Joe at Loblaw’s as an example of the void is now partially filled) and housewares (HomeSense to some degree has filled part of that void). Even though most of what Target sells can be termed as “basics” or “fashion basics” in one way or another the perception and imaging (which has been spectacularly brilliant for years) is that of a fashion forward, young, edgy and cool way of life without having to pay for it.
On a separate note, there is a lot of buzz of regarding the “foreignization” of Canadian retail. This is not new. This has been happening for decades and was inevitable. The pace has been accelerated for two reasons; firstly, Canadian retailers have failed to fill all the voids to prevent foreigners from staking their claim (or at least failed to entice them enough to buy them outright for the most part); and secondly, the U.S. and European recession was much more severe than the Canadian one and expansion into a stable and more steady economy than their own backyards makes a lot of sense to their shareholders for the next couple of years.
Do not be fooled though. Most of these entrants can only open between 18-25 stores across the country (except for Target and lower priced concepts). They will be run as a district or a region and be a satellite operation like any other in North America. It’s still good news for consumers and landlords.
Competition is always a good thing for Canadian home grown retailers too, although I am not sure I would call them winners in this exercise.